Provincial pot: The rocky road of regulation

In the second part of Black Press Media’s special series on cannabis cultivation, journalist Nick Laba reports on the thousands of personal cultivators supplying B.C.’s grey market, and how today’s strict legal regime is potentially locking up billions in untaxed revenue.

Room to grow

An aquamarine hue is muted by the jet-black plastic of two empty hydroponic grow trays. The light shines down from industrial fixtures in a sterile and otherwise empty room.

The room sits inside an unoccupied building. Its emptiness serves as a symbol for a six-year application process to become a licensed producer, an effort that continues today.

Darcy Bomford’s first application to legally grow cannabis was an experiment. In 2012, the entrepreneur applied for a Marihuana Medical Access Regulations (MMAR) licence from Health Canada – his curiosity sparked by rumours of a federal licence to grow hundreds of plants.

“I filled out a little form, went to a doctor, and then before you know it, I had a document that allowed me to plant 900 plants for my own use, which I thought was absolutely crazy,” the True Leaf CEO said at his head office in Vernon.

The ability to grow hundreds of plants for personal use drove the entire underground MMAR market, he added.

Bomford never did use that licence. In 2013, the Marihuana for Medical Purposes Regulations (MMPR) came into effect, meaning he could apply to be a licensed producer for registered patients. To get that licence, he and a small team of consultants produced some 1,200 pages of documentation.

By late 2013, he got his ready-to-build approval, but the good news didn’t last. Swamped with applications, Health Canada increased its scrutiny. They rejected Bomford’s approval because the City of Vernon didn’t have the right zoning in place.

“So what I did was I found another location nearby, in Lumby, leased the land, and the town was behind our application and I was able to reapply,” he said, “but unfortunately went from being number 48 in Canada to apply, to number 498.”

Companies that made it through the first round of approvals — like Canopy Growth and Tilray — are now valued in the billions. For others, the moving target of federal regulation remains elusive.

A brief history of cultivating legal cannabis

Today, a rift runs through B.C.’s pot economy. A handful of licensed producers are rapidly expanding to increase supply while standing in the shadow of their forebears.

A recent report by Grow Tech Labs, a Vancouver-based cannabis business accelerator, estimates that freeing up just 15 per cent of the grey market would generate $3 billion in sales over two years — that’s $10 billion per year in mostly untaxed revenue.

By another metric, there are 39 commercial cultivation licences in B.C. approved under the Cannabis Act, while there are more than 6,600 personal or dedicated production registrations.

It is widely understood that the majority of these quasi-legal growers are illegally selling their premium bud at competitive prices.

To get a sense of how this gap has formed, it helps to understand Canada’s history of legal cultivation. The first regulations to allow citizens to grow their own cannabis followed R. v. Parker, a historic Ontario Court of Appeal ruling in 2000.

As a child, Terry Parker was struck in the head with a swing, developing severe epilepsy as a result. He tried conventional medicine to cure his seizures with minimal success. After failed surgeries, Parker found that smoking weed reduced his symptoms, so he started growing it.

After twice having his home searched and being charged with possession, Parker fought his charges on the basis that they were unconstitutional under section 7 of the Charter of Rights and Freedoms — the right to life, liberty and security of the person.

Based on Parker’s medical needs, the judge agreed.

Charlene Howe is a local resident and a full-time employee at Broken Coast in North Cowichan. (Nick Laba/Black Press Media)

According to Health Canada, this decision led to the creation of the MMAR in 2001, which allowed authorized patients to grow their own plants or designate someone to grow them. Following more court rulings, the federal government introduced the MMPR in 2013, opening the medical market to commercial producers.

As the MMAR was set to expire in 2014, personal production came under threat. In the same year, an injunction in Allard et al. v. Canada grandfathered in thousands of previously held MMAR licences, pending trial.

A final Federal Court ruling in 2016 found the MMPR unconstitutional, mostly because commercially produced cannabis was too expensive for patients.

So later that year, the Access to Cannabis for Medical Purposes Regulations (ACMPR) became the new legal framework.

When the recreational market went live last October, the ACMPR — a hybrid of personal and commercial medical production rules — remained largely intact under the newly minted Cannabis Act.

Despite unprecedented access to legal cannabis, the number of licences to grow medicinal cannabis is steadily increasing — from 25,945 to 30,883 between October 2018 and March 2019, with 859 new holders in B.C. alone.

Insult to injury

Growers who have spent their lives building B.C.’s cannabis culture say they see the legal regime as more than just an insult. They view it as a deliberate attempt to exclude them from the new market.

Brian Schindel has been using cannabis through the ACMPR for the past five years to treat anxiety following his first divorce. He and his business partner, a grower with 30 years of experience, started applying in March for a micro-cultivation licence — aimed at small-to-medium producers.

“The tools that the legacy growers have accumulated over the last 20, 30, 40 years are being completely minimized,” Schindel said. “And their weakness — which is their lack of being politically involved, or being out there explaining to everybody socially what they’re doing, because they basically had to hide it — their weakness has been exploited.”

Changes to the licensing process introduced in May require applicants to have their facility built before applying. Health Canada says this will expedite the process, but some criticize the move as adding more red tape for craft producers.

To date, two micro-cultivation licences have been approved.

Schindel said $800,000 has already been invested into his site in Kamloops. He noted his years of experience in regulation-heavy industries have made the process relatively easy, but most growers don’t have that skill set.

“How in the world do you expect somebody that’s been doing this, you know, to be able to jump from one side to the next in a very short period of time?” Schindel said.

When it comes to supporting the old guard, B.C.’s legal producers are divided.

John Moeller, CEO of Vancouver Island-based producer Broken Coast, said the province could start an information campaign to increase trust with a group that feels locked out of the system.

“The simple fact that the province would be saying to the growers, ‘We’re here to support you, we’re here to help you become a legal producer, we’re here to make the transition over the legal market’ – they’ll give them confidence to come forward,” he said.

At Experion Biotechnologies, a small facility on a large piece of agricultural land in Mission in the Fraser Valley, chief operating officer Jarrett Malnarick said that while he’s sympathetic, the purpose of the Medical Marihuana Access Regulations were to supply medicine, not support a lifestyle.

“When you look at the true spirit of why those licences were issued, it was because Health Canada wanted to give an option to the general public to have access to cannabis for medical reasons,” he said. “It was never to supply a 150-illegal-dispensary operation in Vancouver via growing MMARs to over-capacity with no accountability on what they’re doing.”

Once the supply of legal cannabis has stabilized, he said, widespread crackdowns from local authorities and the Canada Revenue Agency should soon follow.

The cannabis in this grow room at Broken Coast is almost ready for harvest. (Nick Laba/Black Press Media)

Thursday: Civic cost and lost legacy

In the third and final part of the series, municipal leaders with more cannabis businesses say they should get a greater share of tax revenues, and the reality that B.C.’s market may be falling behind more progressive provinces.